Paternity Leave Costs Companies Less Than You’d Think

Maternity leave tends to be longer so measuring the effects of paternity leave is particularly hard.

by Lauren Razavi
pile of money illustration

When it comes to parental leave, the U.S. lags behind the rest of the world. Of 41 countries represented in OECD data, 31 now guarantee paid leave for fathers. The U.S., along with Papua New Guinea, Suriname, and Tonga, isn’t one of them. And though Ivanka Trump, her president father’s senior advisor, is pushing for a policy change, it’s unlikely to be pushed through by an otherwise occupied Congress anytime soon. That leaves businesses, an increasing number of which are happy to do so for recruiting, retention, or cultural reasons, footing the bill. But what does that bill actually look like? Tempting as it is to believe a simple salary times days off calculation would represent that figure, the number is different when viewed from the corporate perspective in terms of a parental leave policy’s effects and productivity costs. It is, for reasons that are worth understanding, lower than one might expect.

READ MORE: The Fatherly Guide to Parental and Paternity Leave

“In most cases, the cost is minimal as paternity leaves tend to be quite brief,” says Ruth Milkman, professor of sociology at the Joseph S. Murphy Institute for Worker Education and Labor Studies. “Generally, when fathers are on leave, coworkers pick up the slack just as they would for workers who are absent due to illness or vacation – so there are actually fairly low costs to the employer.”

Costs vary at different stages in the business cycle and different levels of seniority and there’s no reason for firms to publish detailed accounts or, ultimately, keep track. Back when Napster was still threatening to destroy the music industry, California became the first state to introduce paid parental leave, but even though the policy has grown into a sullen teenager, studies attempting to calculate the exact cost to businesses failed to produce reliable data. There’s an apples to oranges problem even within organizations that’s compounded by gender. Maternity leave tends to be longer so measuring the effects of paternity leave is particularly hard.

“Understandably, male-dominated industries, such as construction, mining, transportation and utilities, repair and maintenance, experience the greatest disruption,” explains Lynda Zugec, managing director at human resources firm Workforce Consultants.

When all factors are taken into consideration, the California Employment Development Department calculates the average cost for six weeks paid parental leave to be around $6,400. This may seem like a steep price for small businesses to pay, but Milkman points out that in most cases this is better than trying to replace workers looking to put family first.

“The savings will vary with the particular job, but in general, retaining an existing employee saves [companies a lot of money] on recruitment, onboarding, and training of the new worker,” she says.

On average, companies end up paying one-fifth of an employee’s annual salary to replace that employee. In high-paying industries recruiting from small, specialized labor pools, the costs can be as high as $7,000 for managerial staff, compared with roughly $2,000 for blue collar workers.

In 2010, Milkman and her colleague Eileen Appelbaum published an influential study of the California program. They found that 91 percent of business owners discovered either no adverse effect or a positive effect on profitability and performance, and 99 percent reported it had a no effect or a positive effect on morale. That doesn’t mean that parental leave is free, but it does mean that it’s shockingly cheap and easy to justify to a board.

The number of employers providing paid paternity leave in the U.S. still stands at less than 20 percent.

“Generous paternity leave can serve to round out an attractive benefits package and go a long way in both recruitment and retention. It can also go a long way as far as turnover is concerned,” Lynda Zugec, managing director at Workforce Consultants, a human resources firm. “An organization which does not offer paternity leave may be losing out on valuable talent, both now and down the line. The absence of a competitive package may also have the unintended effect of attracting only a specific group or type of individuals and render less diversity.”

As demonstrated by Boston College’s Center for Work and Family 2015 New Dad study, millennials are less likely to view their occupational and parental roles in conformity with traditional gender stereotypes. This cultural shift over who changes the diapers, feeds, bathes, and plays with a child, carries massive implications for the broader economy. The McKinsey Global Institute estimates that with the removal of the gender work gap, as much as $28 trillion could be added to GDP in 2025, a potential impact roughly the same as the combined size of the current US and China economies. For now though, relative to other countries, women’s involvement in the workforce has been held back–about a third of the gap can be accounted for by the lack of family-positive programs like paid leave.

None of the economic calculations factor in the long-term benefits to children and to business staffed by parents with healthy children. Those sorts of studies are hard to perform. Those sorts of numbers are hard to come by. Still, there is reason to suspect that paid parental leave is as good a deal for private companies as it likely would be for the American economy.